Federal Banking Regulators Join Forces on Supervisory Guidance

Financial Services Law

All five federal banking regulators recently issued an interagency statement, explaining the role of supervisory guidance and describing the agencies’ approach to supervisory guidance.

The message from the Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC) and the Bureau of Consumer Financial Protection (CFPB) would suggest that, because supervisory guidance “does not have the force and effect of law,” future use of the Congressional Review Act (CRA) to roll back such guidance may no longer be an option.

What happened

The five agencies issue various types of guidance—such as interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions—to their supervised institutions.

“Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance,” the five regulators wrote. “Rather, supervisory guidance outlines the agencies’ supervisory expectations or priorities and articulates the agencies’ general views regarding appropriate practices for a given subject area.”

Such guidance often provides examples of practices that the agencies generally consider consistent with safety and soundness standards or other applicable laws and regulations, the agencies wrote, and supervisory guidance provides important insight to the industry that can help ensure consistency in the supervisory approach.

However, the Federal Reserve, FDIC, NCUA, OCC and CFPB felt the need to clarify several policies and practices related to supervisory guidance.

Going forward, the agencies will limit the use of numerical thresholds or other “bright lines” in describing expectations in supervisory guidance. If numerical thresholds are used, they are intended to be exemplary only and not suggestive of requirements, they explained.

Examiners will not criticize a supervised financial institution for a “violation” of supervisory guidance, the agencies said. An examiner may identify unsafe or unsound practices or other deficiencies in risk management that do not constitute violations of law or regulation. “In some situations, examiners may reference (including in writing) supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations,” the statement added.

At times, the agencies have sought public comment on supervisory guidance. They may continue to do so, but such a request “does not mean that the guidance is intended to be a regulation or have the force and effect of law,” the regulators explained. Instead, the comment process helps the agencies improve their understanding of an issue, gather information on institutions’ risk management practices or seek ways to achieve a supervisory objective with the least burden on institutions.

The Federal Reserve, FDIC, NCUA, OCC and CFPB also pledged to reduce the issuance of multiple supervisory guidance documents on the same topic and will aim to limit such multiple issuances in the future.

Finally, the agencies said they will continue efforts to make the role of supervisory guidance clear in their communications both to examiners and to supervised financial institutions.

Why it matters

Since President Donald Trump took office, Republican lawmakers have taken advantage of the CRA to pass resolutions revoking multiple CFPB rules. In one instance, the Government Accountability Office was called on to declare a CFPB Bulletin a rule subject to the statute in order for the statute to be invoked to repeal it. However, this method may no longer be viable now that the agencies have joined together to declare that supervisory guidance lacks the force and effect of law.



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